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UC Water Resources Center Technical Completion Report W-921

Download the Paper (1.7 MB, PDF file) - September 1, 2001 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing.

ABSTRACT:
This research uses laboratory experiments to test alternative water market institutions designed to protect third-party interests. The institutions tested include taxing mechanisms that raise revenue to compensate affected third-parties, and a free market in which third-parties acti vely participate. We also discuss the likely implications of a command-and-control approach in which there are fixed limits on the volume of water that may be exported from a region. The results indicate that there are some important trade-offs in selecting a policy option. Although theoretically optimal, active third-party participation in the market is likely to result in free-riding that may erode some or all of the efficiency gains, and may introduce volatility into the market. Fixed limits on water exports are likely to result in a more stable market, but the constraints on exports will result in lower levels of social welfare. Taxing transfers and compensating third-parties offers a promising balance of efficiency, equity and market stability.

SUGGESTED CITATION:
Richard E. Howitt, "Mechanisms for Addressing Third-Party Impacts Resulting from Voluntary Water Transfers" (September 1, 2001). University of California Water Resources Center. Technical Completion Reports. Paper 921.
http://repositories.cdlib.org/wrc/tcr/921